An investigation of franchising as a business strategy

This research paper attempts to analyse the different aspects of franchising as a business practice in Singapore. An insight to franchising in different aspects in the perspective of franchisors and franchisees is presented. The authors also evaluated the operations and performance of local franchises and foresee future prospects of local franchises in Singapore. For this research, the main emphasis will be given to the four major sectors of the franchise industry which are fashion, food, retail and service. In order to meet the basic objectives of this study, two questionnaires are designed and sent out for the franchisors and franchisees respectively. An interview is also conducted to address various areas covered in this research. In analysing the data collected, percentages and means are used and the results are presented using pie charts, bar charts and tables. From the franchisor’s survey, it is found that service and retail sector both have the largest proportion of franchisor in the franchise industry in Singapore. The average year of existence of franchise scheme in Singapore is only 3.57 years and enterprises in food and fashion sector have adopted franchise scheme earlier than those of retail and service sector. More than 60 percent of the franchisors have less than 100 staff. About two-fifth of the respondents has annual turnover between $5 million to $10 million and another one-third achieved more than $10 million turnover. The respondents from the food and retail sectors have ranked economies of scale as the most important reason for expanding their business through franchising. Franchisors also ranked company’s logo, pricing and supplies as the most important areas for standardisation. Franchisors have recorded a rate of improvement of between 0 to 29.9 percent in areas like dollar sales, operating costs, investment in stock, profitability and market shares after they ventured into the franchise industry though the costs also increased. However, having different objectives with the franchisees is the main headache for the franchisors. They also quoted the lack of management skills and unprofitable, unhappy franchisees as the main reason for a franchise to fail. Close examination of the franchisee’s questionnaires has revealed that retail sector forms the largest portion in population of franchisees in Singapore. Male franchisees dominated in all sectors except fashion. Majority of the franchisees are in the age group of 40-49 years old and have educational level of GCE ‘O’ Levels and below. Franchisees usually have accumulated relevant working experience before they entered into a particular sector. Initiative is the most desirable personal attribute while judgement and foresight are the most important factors for a successful franchise operation. The most common problem faced by franchisees is administration. The survey also shows that marketing consultation and implementation of feasibility study are regarded as the more important areas where franchisees hope to seek assistance from the authorities. The result also shows that franchisees have a low level of satisfaction in many areas of operation including current profit level. However, they are still willing to recommend others to take up franchising despite their dissatisfaction with the current profit level. Based upon the findings and within the limitation of this study, the authors concluded that expansion through franchising is ideal for small and medium sized firms as it involves lower risk and less capital. However, it is not a no-sweat, easy-money scheme. Franchisors should assist their franchisees in their business operation but franchisees cannot solely depend of them to do all the work. They must treat each other as partners in business and work hand in hand to achieve success.ACCOUNTANC